Improving asset quality leads banks to $34.5B profit in 2Q

Financial institutions backed by the Federal Deposit Insurance Corp. posted profits of $34.5 billion in the second quarter, according to an FDIC release.

That’s an improvement of $5.9 billion, or 20.6 percent, over earnings in the second quarter of 2011, and the increase marks the 12th consecutive quarter of year-over-year earnings increases.

Almost two-thirds of all institutions posted increased net income over the year-ago period, the report indicated.

“The banking industry continued to make gradual but steady progress toward recovery in the second quarter,” said Martin Gruenberg, FDIC chairman, in the release. “Levels of troubled assets and troubled institutions remain high, but they are continuing to improve.”

Local data backs up Gruenberg’s claims: as reported in a Page 1 story in last week’s MBJ print edition, Memphis-headquartered banks grew loan volume over the year-ago quarter while reducing the amount of non-performing loans and real estate.

Year-to-date net income data — which was at negative $47.4 million to end the second quarter — for area banks was skewed by First Horizon National Corp.’s (NYSE: FHN) $124.8 million net loss during the quarter. The loss stemmed from First Horizon’s decision to allocate a quarter-billion dollars to its mortgage repurchase reserve. First Horizon is the parent company of First Tennessee Bank.

Without the First Horizon charge, the remaining 24 area banks reported year-to-date net income of $22.3 million, according to data from the Federal Reserve Bank of St. Louis.

Still, loan loss reserves among area banks declined considerably from second-quarter 2011 to the most recent quarter. Year-ago loan loss provisions topped $580 million — 53 percent more than the $379 million in allocations ending second quarter 2012.

Across all FDIC-insured banks, loan-loss provisions dropped more than 26 percent to $14.2 billion.